Five tips to deal with late payments
Late payments can pose a major cash flow threat to businesses. When payments are not received on time, a firms cashflow can be depleted as they use available cash resources to cover normal operating expenses resulting in cashflow challenges. This can leave them with insufficient funds to support business growth. Moreover, having to chase up overdue payments can be time-consuming and costly, placing an extra administrative burden on the business.
In order to reduce the likelihood of late payments, it is important that businesses create an effective invoicing and credit control process to support on time payments. We've identified five preventative measures businesses can adopt to help avoid the challenge of late paying customers.
Five steps to avoid late payments:
- Credit check your customers
- Set clear payment terms
- Diligent credit control
- Flexible payment methods
- Consider Invoice Finance
Credit check your customers
Prevention is key rather than curing the issue of late payments. Running credit checks on prospective clients is an important part of evaluating their creditworthiness and understanding their ability to pay you for the goods/service you provide. This also helps you to manage the risk of non-payment. It brings greater transparency to the process helping you to make informed decisions as to which customers you want to deal with, and which customers may present possible future payment issues. Understanding their credit worthiness also helps you to set credit limits for you customers increasing your confidence that they will be able to make payments.
Set clear payment terms
Having clear and concise customer payment terms is essential to avoid late payments. You should clearly state the payment terms when payment is due and any penalties for late payment on quotes and invoices. It helps to ensure that customers understand their payment obligations upfront, reducing confusion and potential disputes over payments helping to ensure you receive payment on time. You can also offer incentives for early payments, such as discounts to encourage and reward reliable customers.
Diligent credit control process
A diligent credit control process is essential for any business that wants to ensure it gets paid on time and in full. Crucial to ensuring you are paid on time is ensuring upfront that there are no issues why payment will not be made. Once you invoice has been sent to your customer – contact them to ensure receipt and seek clarification that there are no issues with the invoice that may affect payment. Reminding customers that payments are due brings it to their attention again. If payment is not received on time, then issue a reminder and ask for a date when the invoice will be settled. Continue to keep in contact with your customer reminding them of your credit terms each time until payment is received. Do not be scared to threaten legal action if non-payment persists. You have supplied the goods and should be paid for them.
Flexible payment methods
The more convenient the payment process, the faster you will be paid. Using an electronic payment systems and online payment tools can help simplify the process for both parties. However, it is important to provide multiple payment options such as credit card, online payment, and cheques, to accommodate customer preferences and eliminate potential barriers to receiving payment.
Consider Invoice Financing
Ultimately, while there are preventative steps you can take to safeguard your business against late payments, the reality is that far to often small businesses are left chasing payments from their customers. A recent report showed that late payments cost small businesses on average £684 million every year.
Invoice Finance is a popular funding solution which releases the cash tied up in unpaid invoices. You can receive an advance payment of up to 90% of the invoice value within 24 hours of the invoice being raised rather than waiting 30, 60 or 90 days for customer payment. It will help ensure your business has sufficient funds to cover your operational costs and provide the flexibility to take on more business.
Pulse Cashflow empowers businesses through our flexible funding solutions. We can improve cashflow and support your business with our comprehensive credit control solution where we will manage and collect invoice payments on your behalf so that you can focus on your business growth. If you think your business could benefit from our funding solutions call us today on 0845 539 7003 or email email@example.com.